An A-B trust is a revocable living trust which divides into two trusts upon the death of the first spouse. This type of trust makes use of both the estate tax exemption ($3.5 million per person in 2009) and the marital deduction to make it so that no estate taxes are due upon the death of the first spouse. The B Trust is also known as the Bypass trust and it contains the amount of that years applicable exclusion amount. The A trust is the marital deduction trust which will typically contain both the surviving spouse's separate property and one half community property interests but also the residue of the deceased spouse's estate after the estate tax exemption has been utilized by the B trust. The use of an A-B trust ensures that both spouse's applicable exclusion amounts are effectively used, thereby doubling the amount of property which can pass to heirs free of Federal Estate Taxes.
The South Carolina Marital Deduction Trust, specifically Trust A and Bypass Trust B, are two important tools used in estate planning to ensure the financial wellbeing and security of spouses in South Carolina. These trusts are specifically designed to take advantage of the marital deduction allowed under the federal estate tax laws. Trust A, also known as the Marital Deduction Trust, is established by one spouse for the benefit of the other. Its primary purpose is to provide for the surviving spouse by transferring assets into the trust upon the death of the first spouse. The surviving spouse receives income from the trust during their lifetime and is also often given the power to access principal for health, education, maintenance, and support needs. The assets placed in Trust A are not subject to estate taxes upon the death of the first spouse, due to the marital deduction. On the other hand, Bypass Trust B, also referred to as the Credit Shelter Trust or Family Trust, is established to maximize the use of the deceased spouse's federal estate tax exemption. When the first spouse passes away, a specified amount of assets, up to the federal estate tax exemption limit, is transferred into Trust B. This trust is usually irrevocable, meaning it cannot be altered or revoked once established. The surviving spouse can benefit from the trust, typically receiving income and potentially being able to access principal under certain circumstances. Unlike Trust A, the assets placed in Trust B can appreciate outside the surviving spouse's taxable estate, potentially resulting in significant estate tax savings upon the death of the surviving spouse. It's important to note that South Carolina's laws regarding marital deduction trusts may differ from those in other states. Additionally, other variations or types of marital deduction trusts may exist based on the specific needs and circumstances of estate planning individuals. Examples include TIP trusts (Qualified Terminable Interest Property trusts), which provide for both the surviving spouse and children from a previous marriage, or special needs trusts, which cater to beneficiaries with special needs. Overall, the South Carolina Marital Deduction Trusts, including Trust A and Bypass Trust B, play a crucial role in estate planning by ensuring the financial security of spouses while minimizing estate tax liabilities. Professional guidance from estate planning attorneys or financial advisors with expertise in South Carolina law is important to fully understand and implement these trusts.
